Bulletin

Dueling economists

Commentary: Debating Clinton's economics

By

Dr.Irwin Kellner

HEMPSTEAD, N.Y. (MarketWatch) -- After my experiences of the past few days, I thoroughly subscribe to the old saying that if you laid 1,000 economists end to end, you still wouldn't reach a conclusion.

Last week I had the honor of participating in Hofstra University's 11th Presidential Conference, "William Jefferson Clinton: The 'New Democrat' From Hope." It examined Bill Clinton's presidency from numerous perspectives.

I moderated the panel that analyzed and discussed Mr. Clinton's domestic economic policy. We delved into the reasons for the unparalleled prosperity that characterized his term in office, and what they mean for the future.

Besides myself, there were seven other economists on the panel, four presenting original papers, and the other three serving as commentators. Two of these commentators were members of the Clinton administration.

You know what? About the only thing we all agreed on was that there was no recession under Mr. Clinton's watch. On just about everything else -- even the very notion of prosperity -- there was disagreement, or, at the very least, differing interpretations of what transpired during that era.

On Monday I heard another economist opine on a business talk radio program that he couldn't understand why there's so much pessimism out there. He criticized everyone from the media to other economists for not agreeing with him.

Disagreements like this are why economics has come to be known as the dismal science.

Understand that economics is not a hard science like chemistry, biology and physics, where there are eternal verities. It's a social science that deals with people, where data and other phenomena can be subject to varying interpretations.

Two otherwise reasonable economists looking at the same data can come to two entirely different conclusions, depending on how they view the world. This is because most economists' views tend to be colored by their political beliefs -- not surprising, since the field was originally called political economy.

The Hofstra panel disagreed over whether Bill Clinton's policy of eliminating the budget deficit, thus bringing down long-term interest rates, was responsible for the skein of 120 months without a recession.

Of those presenting papers, three said it was caused by bubbles in the stock market and the dollar, while one thought that the policies worked -- but for reasons that differed from the conventional wisdom.

Needless to say, the two economists from the Clinton team gave themselves full credit for the good times of the 1990s, saying that their economic policies worked exactly as expected.

My view? I side with the speaker who said that their policies worked not because they were "new Democrats," but because they knowingly or unknowingly used old-fashioned Keynesian economics: they took from the rich, whose marginal propensity to consume is low, and gave to the poor, who will spend every extra dollar you give them and then some.

The drop in interest rates alone was not enough to offset the drag created from getting rid of the budget deficit.

As for the brouhaha over the outlook for the coming year, it can best be described as murky.

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